Presentation by Christopher L. Nickels for the American Payroll Association - Wisconsin Statewide Conference ©2016 Quarles & Brady LLP. This document provides information of a general nature. None of the information contained herein is intended as legal advice or opinion relative to specific matters, facts, situations or issues. Additional facts and information or future developments may affect the subjects addressed in this document. You should consult with a lawyer about your particular circumstances before acting on any of this information because it may not be applicable to you or your situation.

2. A Sea Change in Wage and
Hour Law
American Payroll Association - Wisconsin Statewide
Conference
September 18, 2015
Christopher L. Nickels
christopher.nickels@quarles.com
(414) 277-5519
Quarles & Brady LLP

3. • Department of Labor (“DOL”) proposed salary increases to
overtime exemptions.
• DOL’s New Interpretation Of Independent Contractor
Classification.
• DOL Home Health Care Rule Revived
• Supreme Court Case Update – “Compensable Time”
• Wisconsin Law Changes
– 2015 Wisconsin Act 55
– Prevailing Wage Laws
– Local Living Wage Laws
– One Day of Rest in Seven Law
A Sea Change in Wage and Hour Law
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4. • Applies to “white collar” exempt employees only --
– Executive, administrative, professional and computer employees.
– White collar exempt employees must perform certain types of work
as their primary job duties (the “duties test”) and generally be paid a
minimum salary that is not subject to reduction because of variations
and the quality or quantity of work performed (the “salary basis”
test).
• Significant increases to the minimum salary required for these
“white collar” employee to be considered exempt.
• No proposed revisions to the “duties” tests, although may see
changes in a final rule.
DOL Proposes Compensation Increases for
Overtime Exemption Tests
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5. • Salary level was last amended in 2004 -- The current minimum
salary is $455 per week ($23,660.00 per year).
• Purposed increase to $970 per week ($50,440.00 per year) in
2016.
– Proposed increased salary equates to 40th percentile of earnings for
full-time American salaried workers.
– DOL also proposing automatic annual updates to minimum salary.
• “Highly compensated employees” -- Proposed increased from
$100,000 in total annual compensation to $123,000 in 2016
annual compensation.
– Equates to 90th percentile and also subject to automatic annual
updates.
DOL’s Proposed Compensation Increases
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6. • Sixty day comment period closed September 4, 2015.
• DOL received nearly 200,000 comments underscoring a sharp divide in
opinion.
• Major concerns include:
– Salary level does not account for market differences.
– Decreased moral for employees who are reclassified as non-exempt – i.e.,
perceived change from exempt salaried status to non-exempt hourly status as
diminishing the value of their work.
– Requires increased employer monitoring of hours worked to control overtime
costs.
• Center for American Progress: Nearly 5 million more millennials could
become eligible for overtime.
• Millennials comprise 35.2% of the workers who would benefit from the
higher salary threshold.
Impact Of DOL’s Proposed Compensation
Increases
6

7. • Under further consideration: Whether bonuses may count
towards salary.
• Changes to the duties test still possible -- DOL considering
whether to include quantitative analysis of exempt vs. non-exempt
work.
• Timing on possible implementation.
– Awaiting DOL final rule, after which changes will take affect.
– Actual implementation may be delayed if businesses or trade groups
file suit to block.
Still More Changes?
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8. • Proactively access current wage and hour practices to determine
operational and financial impact of increased salaries.
• Consider changes to staffing or salary levels.
• Analyze staffing patterns to maximize efficiency and eliminate
unnecessary hours.
• Prepare financial forecasting/budgeting models to account for
increased overtime expenditures.
• Revise policies or more closely monitor and manage hours worked
to minimize overtime exposure.
• Higher additional workers to minimize overtime expenses.
What Employers Should Do To Prepare
8

9. • Government Accountability Office: The number of independent
contractor’s in the U.S. workforce has increased significantly.
• DOL’s position:
– “Most workers are employees under the FLSA”.
– Independent contractor classification is overused and improper in
most cases.
• DOL’s “administrative interpretation” does not have the force of
law, but is strong indication of DOL’s enforcement position.
DOL’s New Interpretation Of Independent
Contractor Classification
9

10. • Businesses not required to withhold taxes, make Social Security and Medicare
contributions, pay unemployment taxes or provide coverage for workers’
compensation insurance.
• Not required to pay independent contractor minimum wage or overtime.
• Employee benefit plans only cover employees, not independent contractors.
• Federal labor laws do not afford independent contractors the right to be
represented by a labor union.
• Businesses can more easily expand or contract their workforce to accommodate
workload fluctuations.
• Custom and practice in the industry.
• Workers who have specialized talents or technical expertise might want to be
considered independent contractors.
Economic And Business Advantages To Using
Independent Contractors
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11. • Capture lost tax revenues because of failure to withhold taxes on
the compensation paid to workers misclassified as independent
contractors or paid in cash;
• Ensure that workers who should be properly classified as
employees are protected by the full array of laws intended to
safeguard them;
• Foster fair competition so that companies who “play by the rules”
are not disadvantaged by those who are misclassifying employees
as independent contractors.
Reasons Why Government Agencies Are Cracking
Down On Independent Contractor
Misclassification
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12. • Automotive
• Banking
• Car Services/Limousines
and Taxis
• Cleaning and Janitorial Services
• Educational Services
• Computer Programming
• Construction
• Cosmetic/Beauty Products
• Courier Services
• Direct Selling
• Food and Beverage
• Health Care
• Heavy Industry/Manufacturing
• Landscaping
• Marketing
• Security
• Trucking and Transportation
Industries Most Likely To Be Targeted Because of
Independent Contractor Misclassification
12

13. • Confusing array of federal and state tests.
– Each agency has its own test (i.e., taxing authorities, unemployment
insurance authorities, Department of Labor).
– Each state has its own set of authorities with differing tests.
• Highly unlikely that federal and state legislatures will provide any
“standardized” test for independent contractor status.
• Overriding consistent factor in most tests: Whether a business has
the right to control the manner and means by which a worker
accomplishes the end product of his or her services.
Whether A Worker Is An Independent Contractor
Or Employee
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14. • Issued July 15, 2015.
• Focuses on whether the worker is “economically
dependent” on the employer (and thus an employee)
versus a workers who is “in business for him or
herself” (and thus an independent contractor).
• Labels used by the employer and the worker are not
determinative of the economic realities of the working
relationship.
DOL’s “Economic Realities” Test
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15. 1. The extent to which the work performed in integral to the
employer’s business.
2. Whether the worker’s managerial skills affect his or her
opportunity for profit or loss.
3. The relative investment in facilities/equipment by the worker
and the employer.
4. The worker’s skill and initiative.
5. The permanency of the worker’s relationship with the employer.
6. The nature and degree of control exercised by the employer.
DOL’s “Economic Realities” Test – Six Factors
15

16. • Unpaid Federal, State and Local income tax withholdings and
Social Security and Medicare contributions.
• Unpaid unemployment insurance taxes, both to the Federal
government and to State governments.
• Unpaid worker’s compensation premiums.
• Unpaid overtime compensation and/or minimum wages.
• Unpaid work related expenses.
• Unpaid sick and vacation pay.
• Coverage under employee benefit plans.
Consequences of Independent Contractor
Misclassification
16

17. • DOL has embarked on a multi-faceted enforcement approach –
– Hiring more investigators to “detect and deter” violations.
– More aggressive prosecution.
– Grants to State workforce agencies so that they might identify
misclassification and recover unpaid employment taxes.
– Federal-State partnerships to coordinate enforcement efforts and
share information about non-compliant companies.
– Bridge to Justice program.
• Employers should review their relationship with workers
classified as independent contractors for risk under the DOL’s re-
defined test.
Enforcement By DOL And State Agencies
17

18. • Traditionally, employees performing home health care such as certified nursing
assistances, home health aides and personal care aides were excluded from the
FLSA’s minimum wage and overtime pay.
• October 2013 -- DOL creates the Home Health Care Rule and declares that third-
party employers of Home Health Care workers can no longer claim the overtime
and minimum wage exemption.
– Early 2015 -- Federal District Court strikes down the Rule
– August 2015 -- Federal Appellate Court revives the Rule.
• Unless the U.S. Supreme Court overrules or Congress intervenes, the Home Health
Care Rule will become effective in the near future although the date remains
unclear.
• It is estimated that the Home Care Rule will entitle 90% of home care employees to
minimum wage and overtime pay.
• Employers in the home care industry should evaluate their workforce and payroll
practices to ensure they are able to comply when the Home Care Rule comes into
effect.
DOL Home Health Care Rule Revived
18

19. • Employees of a staffing company working at an Amazon
warehouse who underwent security screening before leaving the
warehouse at the end of each day.
• Employees alleged they were entitled to compensation under the
FLSA for time spent waiting to undergo the security screenings,
which amounted to roughly 25 minutes each day.
• Employees alleged that the screenings were conducted to prevent
employee theft and thus occurred solely for the benefit of the
employer and its customers.
Supreme Court Case Update – “Compensable
Time”
19

20. • Principal work activities are compensable; activities that are
preliminary to or postliminary to a principal activity of work
(typically at the beginning and end of the work day) are not
compensable.
• Principle work activities include all activities that are “integral and
indispensable” to the performance of the job.
• Supreme Court looked at these terms pragmatically noting an
activity is not integral and indispensable to an employee’s
principal activities unless it is an intrinsic element of those
activities and one with which the employee cannot dispense if he
is to perform those activities.
Supreme Court Case Update – “Compensable
Time”
20

21. • Examples of integral and indispensable duties include –
– Meat packing employees who sharpen knifes because dull knifes will slow
down production.
– Battery plant employees who spend time showering and changing clothes
because the chemicals in the plant were toxic to human beings.
• Supreme Court concluded that security screenings were not
integral and indispensable to the warehouse operations.
– Staffing company did not employ workers to undergo security screenings, but
rather to retrieve products from warehouse shelves and package those
products for shipment to Amazon customers.
– Staffing company could have eliminated the security screenings all together
without impairing the employee’s ability to complete their work.
Supreme Court Case Update – “Compensable
Time”
21

22. • 2015 Wisconsin Act 55
– Prevailing Wage Laws
– Local Living Wage Laws
– One Day of Rest in Seven Law
Wisconsin Law Changes
22

23. • Prevailing wage laws require employers working on public works
projects to pay employees minimum wages related to the project’s
location.
• In July 2015, Wisconsin repealed much of its current prevailing wage
laws.
• Effective January 1, 2017:
− The prevailing wage law is repealed for “local government units”:
• Villages, towns, cities, school districts, and sewerage districts
• Local governments are prevented from creating their own prevailing
wage laws.
− Prevailing wage law will apply only to state agency and state highway
projects if:
• $48,000 or more for a single trade; or
• $100,000 or more for multi-trade.
Prevailing Wage Laws
23

24. • Effective January 1, 2017 (cont.):
– Prevailing wage will be determined by the U.S. Department of
Labor and not the Department of Workforce Development.
– Liquidated damages and debarment for violations are eliminated.
• New rule does not apply to:
– Requests for Bids issued before January 1, 2017 on a project
subject to bidding; or
– Contract entered before January 1, 2017 on a project not subject
to bidding.
• Current prevailing wage law will apply to existing contracts that
extend beyond January 1, 2017 through the life of the project.
Prevailing Wage Laws
24

25. • Living wage laws are established by cities or counties and raise the
minimum wage for public employees and businesses that receive
contracts or subsidies from local governments.
– City of Madison’s local living wage is set at 110% of the poverty level.
• Under former law, employees could petition to the Department of
Workforce Development to claim that the state’s minimum wage of
$7.25 per hour was not a living wage.
• Under new State law:
– “Living wage” is eliminated from state laws and replaced with
“minimum wage.”
– Employee cannot appeal for a living wage.
– In short, “minimum wage” is considered “living wage” in Wisconsin.
Living Wage Laws
25

26. • Before, employers were required to provide employees at least 24
consecutive hours of rest for every seven-day period.
– Any waivers expired automatically after six months.
• Now, employees can voluntarily agree to work seven days a week
without a day off. To be in effective:
– The employee must agree in writing;
– The employee must state to the effect of “voluntarily chooses to work
without at least 24 consecutive hours of rest in seven consecutive
days.”
– It must be voluntary without coercion or threat of discipline; and
• For employees covered by collective bargaining agreements, this
rule become effective the date the CBA expires, or is modified,
extended, or renewed.
One Day of Rest in Seven Law
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27. • Federal
– Currently $7.25/hr for private employees
– $10.10/hr for workers on Federal construction and service contracts
(Executive Order 13658).
• States
– States with recent or upcoming increases are: Alaska; Arkansas;
California; Connecticut; D.C.; Hawaii; Maryland; Massachusetts;
Michigan; Minnesota; Nebraska; New York; Rhode Island; Vermont;
West Virginia
– California - $10.00/hr effective January 1, 2016
– D.C. - $10.50/hr effective July 1, 2015 and $11.50 effective July 1,
2016
– Mass. – $10:00/hr effective January 1, 2016 and $11.00/hr by
January 1, 2017
Minimum Wage Increases
27

28. • Local
– Fight for $15
– The following are just some examples of municipalities with
upcoming minimum wage increases
• Berkeley, CA - $12.52/hr by 2016
• Chicago, IL - $13.00/hr by 2018
• San Francisco, CA - $15.00/hr by 2018
• Seattle, WA - $15.00/hr by 2018
• Emeryville, CA - $16.00/hr by 2019
• Los Angeles, CA - $15.00/hr by 2020
• New York City - $15.00/hr by 2019
• Washington, D.C. - $15.00/hr by 2020
Minimum Wage Increases
28

29. • Executive: Primary duties must consist of:
– Management of the enterprise or of a recognized department or
subdivision thereof
– Direct the work of two or more other employees or their full-time
equivalents
– Authority to hire or fire or offer valued suggestions as to hiring, firing,
advancement, promotion or any other change of status
White Collar Exemptions: A Primer
29

30. • Primary duties must include:
– Performance of office or non-manual work directly related to the
management or general business operations of the employer or the
employer’s customers; and
– Exercise of discretion and independent judgment with respect to
matters of significance.
White Collar Exemptions: Administrative
30

31. • Includes persons employed as
– Computer systems analysts
– Computer programmers
– Software engineers and other similarly skilled workers in the
computer field.
• Does not include:
– Employees engaged in the manufacture or repair of computer
hardware and related equipment;
– Employees whose work is highly dependent upon, or facilitated by,
the use of computers and computer software programs;
– Individuals who work in a “help desk” capacity who perform
installation or troubleshoot computer or network issues.
Computer Employee Exemption
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32. Questions?
32

33. A Sea Change in Wage and
Hour Law
American Payroll Association - Wisconsin Statewide
Conference
September 18, 2015
Christopher L. Nickels
christopher.nickels@quarles.com
(414) 277-5519
Quarles & Brady LLP